David Prosser: The end of commission is just a new beginning for Hargreaves Lansdown
Outlook Stock market investors really are a fickle bunch. Just a few weeks back, the Financial Services Authority's unveiling of a new regulatorypolicy on commission payments saw more than a quarter of Hargreaves Lansdown's value disappear during a single session. Yesterday, after the financial adviser and stockbroker announced better-than-expected trading figures, half those losses were made good in the space of a couple of hours.
Peter Hargreaves, one of theco-founders of Hargreaves Lansdown – and a man renowned for his forthright opinions – describes the FSA's position as "silly".
The regulator wants to stop fund managers paying commissions to online platforms such as Hargreaves Lansdown's verypopular service Vantage when investors use it to buy their products. Given that the whole point of the retail distribution review (RDR), the reform in question, is to drive sales commissions out of the business of financial advice and product distribution, "silly" doesn't seem quite the right word. That is not to say, however, that the sell-off of Hargreaves Lansdown last month was justified.
The irony is that the company rose to prominence courtesy of its discount broking service, which saw it rebate fund managers' commissions to investors who used it simply as an intermediary through which to invest, rather than as a financial adviser. It ought to be the last business in the financial services sector to be worrying about a long-overdue crackdown on commissions.
Still, as the platform market leader by quite some distance, Hargreaves earns a decent income from the current system. It is effectively a bundling arrangement, where a Vantage investor pays a single fee to his fund manager of choice, which then hands some of that money over to Hargreaves Lansdown to cover the costs of the platform and any financial advice dispensed.
At first sight then, silly or not, the FSA's proposals, which amount to a compulsory unbundling of those fees, represent a threat. But it may not be as serious as one would imagine. Hargreaves Lansdown already charges Vantage investors a fee for certain types of asset purchase – buying shares, for example – and can switch to this model for fund investments too if necessary. And since the FSA's proposals apply across the board – both to rival platforms and to other types of intermediary – clients won't be able to avoid such charges by going elsewhere.
Bear in mind, too, that the FSA's proposals are not a done deal. RDR is not due to come into effect until the beginning of 2013 and we may not yet have heard its final word. Not least because while the model it proposes might be true to the ambition of driving out commission, there is good reason to think that unbundling fees for fund management, transaction costs and financial advice may result in investors paying more.
- 1 Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
- 2 What supermodels really think about posing in the nude
- 3 North Korean defector flees to Finland 'with evidence of chemical testing on humans'
- 4 Black teen in critical condition after store employee 'shoots him for stealing 79-cent pack of cookies'
- 5 Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
Greece debt crisis explainer: A history of just how the country landed itself in such a mess
North Korean defector flees to Finland 'with evidence of chemical testing on humans'
Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
Isis schoolgirl Amira Abase who fled London to join terrorists in Syria mocks victims of Tunisia massacre
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...